Contractors’ Confidence Hits Six Year Low Over IR35

17th February, 2020
By 17. February 2020Finance, IR35
Contractors’ Confidence Hits Six Year Low Over IR35

New research has found that contractors’ confidence in their business is at a six-year low because of government tax policies. According to IPSE and PeoplePerHour’s Confidence Index, independent workers’ projected confidence over the next 12 months has dropped to the third-lowest level since the Index began. Contractor earnings have also dropped by 6 per cent this quarter, and are expected to continue to fall, while 71 per cent also expect their business costs to rise over the coming year.

The research found that the primary cause for the drop in confidence is changes to the off-payroll rules, with limited company contractors expressing the most concern. An alarming 77 percent of these contractors say they don’t know who to trust when it comes to getting advice on IR35.

The inherent unfairness in being classified as “employed for tax purposes” is demoralising for contractors. In addition to this, the government has consistently failed to comment on the widespread PSC ban, even though it clearly sidesteps the legal requirement to take ‘reasonable care’ when making IR35 status determinations.

The fact that the PSC ban has gone unchecked by the government has led to speculation that HMRC are counting on businesses panicking and taking these actions. There’s been worryingly little guidance for end-clients, despite minor concessions such as the recent announcement that the reforms will only apply to work and payments after April 6th.

Less than a quarter (22 per cent) of contractors trust that their hirers will make the right IR35 assessment. Even when end-clients are attempting to assess contracts individually, the bogus apparatus that HMRC has provided is placing the vast majority of contracts inside IR35. Just three per cent of contractors believe that the private sector will be ready when the new rules come into force.

It’s not just engagers who are failing to inspire confidence among contractors. Faced with the unpalatable prospect of deferred liability, recruitment agencies have also been placed in a difficult position when it comes to keeping both their candidates and business clients happy. In some cases, contractors have been told by the end- client that they must use an agency payroll, rather than an umbrella company, which effectively extends the company’s control over the contractor’s new contractual terms.

Thousands of contractors are being stonewalled with non-negotiable policy from the end-client and radio silence from HMRC. However, an honest and empathetic discussion will eventually be required between all parties to keep the supply chain viable. The recent exodus of many IT contractors from the banking sector, leaving many projects in the lurch, has given a post-Brexit business sector cause for concern. The fact that many contractors don’t trust HMRC not to take retrospective action if they accept an inside IR35 status on their current contracts shows how the situation can quickly unravel.

Professor Andrew Burke of Trinity College Dublin, and one of the Index authors, said: “It’s a testament to the strength of the independent sector that despite a fall in fourth-quarter earnings and day rates since a year ago, high-skilled freelancers still earn more than twice the income of equivalent employees.” While many contractors expected that fluctuations in the economy following Brexit would affect their business, it’s the off-payroll reforms that have really put the boot in.

At the root of the drop in contractors’ confidence is undoubtedly the government’s relentless portrayal of them as dishonest tax avoiders. This somewhat sweeping assumption has allowed the Treasury to tar an entire sector with the same brush, and has been used to justify some extremely dubious actions. They have forced businesses and agencies to make decisions that damage their crucial relationship with contractors. In doing so, they have devalued the proven role that contractors play in strengthening the economy – only time will tell what the real cost will be.

This content has been supplied by IR35 Guru.

At ContractingWISE we can offer you an IR35 solution to suit your personal circumstances. We have access to an excellent range of specialist umbrella companies, and can also help you with suspending or closing your limited company, depending on your situation. If you’ve been affected by the IR35 reforms and feel unsure about your position, get in touch with us and we’ll talk you through your options. To talk to a member of our team, call: 0203 642 8679